RS Edge: WALA Ramps for Non-Bank Servicers
In 2019, the non-bank servicing sector continued to grow faster than traditional bank-servicers. As a group, non-bank servicers now represent nearly half of the agency MBS market, with outsized representation in newer-production mortgages. Their aggressive refinancing has driven speeds on in-the-money mortgages to post-crisis highs, and we believe this behavior will continue into 2020.
But within the non-bank sector, prepayment behavior varies widely. In this short post, we measure the fastest non-bank servicers against their cohorts and against the wider market.
We used the Edge platform to generate WALA ramps for the top 25 non-bank servicers for 30yr “generic” mortgages.¹ In the first graph, we show WALA ramps for bank-serviced and non-bank–serviced loans that were 75-125bp in the money over the last calendar year. At the peak, non-bank servicers outstripped bank servicers by roughly 8 CPR.
In the next chart, we break out performance for the two fastest non-bank servicers: United Shore and Provident Funding.² United Shore clocked in at a blazing 83 CPR for the 7-8 WALA bucket with Provident printing in the high 70s.
Switching to SMM—the right way to examine such fast speeds—we see that loans serviced by United Shore paid at 13.7 SMM, more than twice the unscheduled principal per month than the cohort of non-bank servicers in months 7 and 8.
In closing, we note that newer vintage Freddie Mac Supers consistently contain more United Shore and Provident product than similarly aged Fannie Mae Majors. Together, United Shore and Provident account for 14-18% of newer–production Freddie Supers, such as FR SD8016, SD8005, SD8001, and SD8006, but only 4-6% of Fannie Majors, such as FN MA3774 or MA3745. Most of the fast-payer Freddie Supers are 3s and 3.5s and may not show fast speeds at current rates, but in a 25-50bp rally we may see separation between Fannie and Freddie TBA speeds. As a consequence, Freddie Supers may have worse convexity than similar vintage Fannie Majors.
If you are interested in seeing variations on this theme, contact us. Using RS Edge, we can examine any loan characteristic and generate a S-curve, WALA curve, or time series.
¹For a loan to be included, it had to be securitized into a deliverable 30yr Fannie or Freddie pool and have a loan balance greater than $225,000, FICO > 700, LTV <= 80, and not in NY state. All analysis was done at loan level.
²New Residential and Home Point Financial receive an honorable mention for fast speeds. Their speeds showed more response for loans 50-100bp in the money but started to converge to average non-bank speeds when 75-125bp in the money. See RiskSpan for details.